TDS on Service tax paid on reverse charge paid to advocates

[jatin Gandhi]

We have paid legal fees to our advocate amounting to Rs.100000/-. We have deducted TDS under section 194J @ 10% on Rs.100000/-. Our chartered accountant is adamant that TDS is required to be deducted on Service Tax component paid under reverse charge mechanism.

As per my understanding TDS is required to be deduted on the gross amount charged by service provider. In this case, the gross bill is only Rs100000/-.

Kindly guide whether my position is right or not?

 

[Rachit Nagpal]

TDS should be deducted on the amount which you are liable to pay and in the case of Reverse Mechanism you are not liable to pay the service tax amount to the service provider.So you are right as you need not required to deduct TDS on the Service tax portion as this should be paid by you under service Tax Mechanism.

[surendranadhan tvd]

Please refer the judgment of the Hon’ble Rajasthan High Court, in the case of Commissioner of Income Tax (TDS), Jaipur Vs.  M/s. Rajasthan Urban Infrastructure [2013 (8) TMI 12 – RAJASTHAN HIGH COURT] on following issue:

Issue:

Whether   TDS is to be deducted on the amount of Service Tax charged on professional/ technical fees under Section 194J of the Income Tax Act, 1961?

Facts & Background:

M/s Rajasthan Urban Infrastructure Development Project (“the Respondent or the RUIDP or the assessee”) is a project of Government of Rajasthan for the Infrastructure Development and Civic Amenities in the specified areas/ cities   in the state of Rajasthan.  The  RUIDP  appoints the technical and project consultants and deducts income tax at source from the amount of  fee payable as  per   the agreement and deposit the same as  per   the  relevant provisions of  the Income Tax Act, 1961  (“the  Income  Tax  Act”) and subsequently  files  the return for  the same within  due time.

 

The Assessing Officer, vide its order dated 30.01.2009 raised a demand of Rs. 1,70,881/- along with  interest thereon amounting to Rs.  44,776/-, on account of TDS on the amount paid   as Service Tax pertaining to Financial Year 2005-06. The  assessee preferred an  appeal before the Commissioner  of  Income  Tax  (Appeals),   Jaipur  which  was  allowed. Being  aggrieved with  the same,  the Revenue  filed  an  appeal  before the Income  Tax  Appellate Tribunal, Jaipur  but the same was  dismissed. Hence the revenue preferred an appeal before the Hon’ble Rajasthan High Court.

 Held:

It was  held   by  the Hon’ble Rajasthan High  Court that if Service  tax  is  payable  in addition  to professional/  technical   fees under  the  contract,   the  withholding  tax  will be  restricted  to  the professional fees. Hence, examination of contract terms is imperative

 The Hon’ble Rajasthan High Court held that the words “any sum paid” used in Section 194J of the Income Tax Act, 1961, relate to “fees for professional services or fees for technical services”. In terms of the agreement, the amount of Service Tax was to be paid separately and was not included in the fees. Hence the orders passed by  Appellate Authority as  well as  the Appellate  Tribunal  are  in accordance with the provisions of Section 194J of the Income Tax Act, 1961.

AI Summary

TDS on service tax should exclude reverse-charge service tax; withholding confined to professional fees payable under contract. TDS under fees for professional or technical services is deductible only on the amount the payer is liable to pay to the service provider; where service tax is payable separately by the recipient under reverse charge, that service tax component is not included in the taxable fee for withholding, and the contract's allocation of fees and service tax determines the withholding scope.